893.50 Recovery/1–2949

Memorandum Prepared in the Office of Far Eastern Affairs

China: Continuation of U.S. Aid to the Chinese National Government After April 3, 1949


To determine whether the Department should support a recommendation that Congress authorize funds for extension of aid after April 3, 1949, to the present Chinese National Government, or to a legal successor Government of similar complexion, if such a government controls significant areas of China at that time.


Despite extension of aid to the National Government under the China Aid Act of 1948,2 the Chinese Nationalist armies have suffered major defeats by the Communists and are being driven back steadily, while the economic position of the National Government continues to deteriorate rapidly. The Communists now hold Manchuria and practically all of China proper north of the Hwai River, except for Peiping, Tientsin and Tsingtao, and they appear to be in a position to gain control of Peiping, Tientsin, Nanking, Shanghai and Hankow by military or political means within a relatively short period of time and on their own terms. Thus, while it is impossible to foresee what political maneuvers will take place, it is probable that by April 3 or shortly thereafter, effective control by the present National Government will not extend beyond a limited part of the Southeast China coast and/or Taiwan.3 Although large areas of south and west China might still remain under non-Communist leadership, the probable loss by the National Government of much of its administrative apparatus [Page 600] and of its military forces would make impossible the maintenance of effective control over such areas.

Unless there should be an unexpected and unprecedented improvement in the administrative and military operations of the National Government and in the will to fight of its armies, it is unlikely that the Communists would have great difficulty in expanding their control throughout south and west China if, as soon as they consolidated their position in the north, they chose to move southward. Under present conditions, only the extension of unlimited U.S. economic and military aid, involving extensive control of Chinese Government operations by American military and administrative personnel, and including the immediate employment of U.S. armed forces to block the southern advance of the Communists, would enable the National Government to maintain a foothold in south China against a determined advance by the Communists. On the other hand, the isolated position, limited area and economic viability of Taiwan offer some prospect that a non-Communist government on Taiwan might be able to withstand Communist control of that island indefinitely.

The Department’s view has been that, under existing circumstances, involvement of the U.S. in the Chinese civil war by unlimited extension of aid of great but unpredictable dimensions, and direct supervision in the field of Chinese military operations, or by use of U.S. armed forces in China, would be contrary to U.S. interests. While there is little prospect that a continuation of aid on the present scale would contribute effectively to resistance against the Communists on the Chinese mainland, the political disadvantages, both domestic and international, of an abrupt cessation on April 3, 1949 of economic aid to the Chinese Government that we continue to recognize would be considerable. Moreover, it is possible that additional U.S. aid could be an important factor in stabilizing the situation on Taiwan and in enabling the emergence of a relatively strong government on that island.

Action Taken:

Consideration is being given to an ECA4 proposal that Congress be requested to amend the China Aid Act of 1948 to permit obligation of funds through June 30 or September 30, 1949. If such a request were made and were approved by Congress, it would enable expenditure during this period of funds now authorized but unavailable—namely, (1) $63 million unappropriated which Congress would be asked to appropriate, and (2) some $60 million earmarked by ECA for industrial replacement and reconstruction, but suspended due to recent military developments. It is believed that, in view of the legislative [Page 601] history of the Act, ECA should obtain concurrence of Congressional Committees concerned if diversion of reconstruction funds to commodity procurement were to be undertaken. These steps would enable ECA to continue its present rate of commodity shipments to China through the third or fourth quarter of 1949, and to carry forward an industrial program for Taiwan. A request to Congress for further extension of the Act and for additional funds could be made before the end of the present session if the situation in China were then to warrant such action.

  1. Approved April 3, 1948; 62 Stat. 158.
  2. For correspondence on Formosa policy, see pp. 261 ff.
  3. Economic Cooperation Administration.